Oregon High Court Issues Mixed Ruling on PERS
Reforms

March 8, 2005 (PLANSPONSOR.com) - The state of
Oregon's high court has thrown out two legislative pension
reform measures, including a minimum earnings guarantee for
veteran government employees and the halting of certain cost
of living adjustments (COLA).

The high court’s
92-page ruling
Tuesday represents the latest chapter in a long-running
saga in which Oregon officials have struggled to fix the
state’s Public Employee Retirement System (PERS). The court
consolidated six originally separate challenges to the
pension reforms enacted by the 2003 Legislative Assembly
(See
Oregon Lawmakers OK
Reformed Public Pension Plan
).

With both the minimum earnings guarantee and cost of
living issues, justices ruled that lawmakers’ changes
interfere with workers’ proper contract rights. Declared
the court, however: “In all other respects, we conclude
that petitioners’ challenges to the 2003 PERS legislation
are not well taken.”

The earnings guarantee had assured about 110,000 workers
who joined the pension system before 1996 that the portion
of their accounts invested in stocks would get annual
returns of at least 8% annually, even in a down equity
market. Legislators changed the law to ensure that PERS
members would get an average 8% earnings on their stock
investments over their length of their careers.

The cost of living issue had blocked COLAs for about
22,000 workers who retired between April 1, 2000 and April
1, 2004.

According to media reports Tuesday, the pension system
may have to restore money to retirees’ accounts because of
the high court’s decision, but the fiscal impact was not
immediately known.

Legislative changes upheld by the Supreme Court include
one that shifted future employee contributions to their
pensions – 6% of their salaries – to separate accounts
outside of PERS. The goal was to decrease some workers’
ultimate pensions by reducing the amount the retirement
system matches in their PERS accounts when they retire.

The court also said the Legislature had authority to
direct PERS to use updated life expectancy tables in
determining benefits when a worker retires. Outdated tables
that had been used since the 1970s didn’t reflect today’s
longer average life expectancies (See
OPERS Life Tables Bill
Heads to State Senate
). That meant many employees’ pension accounts didn’t
stretch long enough to last until their death and taxpayers
had to make up the difference so PERS could pay the added
amount.

The 2003 Legislature passed the reforms at the urging of
Governor Ted Kulongoski to shave a projected deficit once
estimated to be as high as $17 billion. The changes trimmed
about $9 billion from the estimate, according to media
reports.